970:
960:
141:
According to Myers, the value of the levered firm (Value levered, Vl) is equal to the value of the firm with no debt (Value unlevered, Vu) plus the present value of the tax savings due to the tax deductibility of interest payments, the so-called value of the tax shield (VTS). Myers proposes
149:
The method is to calculate the NPV of the project as if it is all-equity financed (so called "base case"). Then the base-case NPV is adjusted for the benefits of financing. Usually, the main benefit is a
29:: The discount rate used in the first part is the return on assets or return on equity if unlevered; The discount rate used in the second part is the cost of debt financing by period. In detail:
69:
The value from the interest tax shield assumes the company is profitable enough to deduct the interest expense. If not, adjust this part for when the interest can be deducted for tax purposes.
374:
154:
resulted from tax deductibility of interest payments. Another benefit can be a subsidized borrowing at sub-market rates. The APV method is especially effective when a
367:
203:
192:
Myers, S.C. (1974), “Interactions of
Corporate Financing and Investment Decisions – Implications for Capital Budgeting”, Journal of Finance (March), pp. 1–25
360:
261:
44:
Take
Present Value (PV) of FCFs discounted by Return on Assets % (also Return on Unlevered Equity %) + PV of terminal value
191:
131:
146:(Kd). The argument is that the risk of the tax saving arising from the use of debt is the same as the risk of the debt.
841:
115:
158:
case is considered since the company is loaded with an extreme amount of debt, so the tax shield is substantial.
754:
900:
994:
694:
241:"A tool kit for discounted cash flow valuation: consistent and inconsistent ways to value risky cash flows"
25:
APV = Unlevered NPV of Free Cash Flows and assumed
Terminal Value + NPV of Interest Tax Shield and assumed
418:
811:
324:
38:+ Noncash items in EBIT – Working Capital changes – Capital Expenditures and Other Operating Investments
774:
279:
999:
945:
930:
920:
759:
574:
92:
963:
940:
878:
704:
629:
589:
569:
57:+ Present Value of Debt's Periodic Interest Tax Shield discounted by Cost of Debt Financing %
26:
104:
674:
664:
634:
604:
544:
254:
915:
679:
517:
487:
831:
853:
848:
352:
172:
111:
8:
803:
130:(Myers) or following later academics also with the unlevered cost of equity. APV and the
84:
973:
885:
868:
826:
749:
741:
527:
512:
387:
303:
167:
910:
280:"On the Equivalence between the APV and the wacc Approach in a Growing Leveraged Firm"
905:
890:
821:
764:
709:
684:
654:
644:
554:
537:
458:
453:
413:
408:
395:
383:
332:
307:
295:
291:
240:
135:
863:
858:
769:
724:
624:
522:
443:
428:
403:
287:
155:
221:
925:
836:
789:
779:
714:
639:
609:
559:
507:
479:
423:
143:
873:
784:
119:
54:(i.e., firm value without financing effects or benefit of interest tax shield)
988:
492:
336:
299:
96:
88:
731:
579:
564:
438:
127:
689:
659:
502:
433:
935:
895:
699:
649:
619:
497:
151:
123:
100:
669:
532:
719:
614:
599:
278:
Massari, Mario; Roncaglio, Francesco; Zanetti, Laura (2007-09-10).
549:
207:
110:
Technically, an APV valuation model looks similar to a standard
448:
382:
142:
calculating the VTS by discounting the tax savings at the
277:
91:. The idea is to value the project as if it were all
255:"FIRM VALUATION: COST OF CAPITAL AND APV APPROACHES"
118:, cash flows would be discounted at the unlevered
986:
229:(Technical report). University of Navarra. 488.
368:
969:
959:
375:
361:
134:should give the identical result if the
34:= Net Operating Profit After Tax (NOPAT)
15:
987:
356:
219:
95:("unleveraged"), and to then add the
319:
317:
13:
14:
1011:
314:
968:
958:
292:10.1111/j.1468-036X.2007.00392.x
267:from the original on 2004-04-21.
65:=Value of Levered Equity or APV
50:+ Excess cash and other assets
755:Debtor-in-possession financing
271:
247:
233:
213:
196:
185:
1:
284:European Financial Management
220:Pablo, Fernández (May 2006).
178:
695:Staggered board of directors
7:
812:Accretion/dilution analysis
161:
10:
1016:
775:Leveraged recapitalization
223:Levered and Unlevered Beta
107:– and other side effects.
46:=Value of Unlevered Assets
22:
954:
946:Valuation using multiples
931:Sum-of-the-parts analysis
901:Modigliani–Miller theorem
802:
760:Dividend recapitalization
740:
588:
575:Secondary market offering
478:
467:
394:
964:List of investment banks
879:Free cash flow to equity
705:Super-majority amendment
630:Management due diligence
570:Seasoned equity offering
52:=Value of Unlevered Firm
675:Shareholder rights plan
665:Post-merger integration
635:Managerial entrenchment
605:Contingent value rights
545:Initial public offering
329:Harvard Business Review
132:standard DCF approaches
817:Adjusted present value
680:Special-purpose entity
518:Direct public offering
488:At-the-market offering
114:. However, instead of
87:introduced in 1974 by
77:Adjusted present value
59:=Value of Levered Firm
832:Conglomerate discount
286:: 070915221011002––.
32:EBIT – Taxes on EBIT
854:Economic value added
849:Discounted cash flow
202:Dirk Jenter (2003).
995:Valuation (finance)
439:Senior secured debt
20:
974:Outline of finance
886:Market value added
869:Financial modeling
827:Business valuation
750:Debt restructuring
528:Follow-on offering
513:Corporate spin-off
471:(terms/conditions)
388:investment banking
325:"APV -- Base Case"
168:Leverage (finance)
16:
982:
981:
906:Net present value
891:Minority interest
822:Associate company
798:
797:
765:Financial sponsor
685:Special situation
655:Pre-emption right
645:Minority discount
555:Private placement
454:Subordinated debt
409:Exchangeable debt
396:Capital structure
384:Corporate finance
173:Hamada's equation
136:capital structure
74:
73:
1007:
1000:Financial models
972:
971:
962:
961:
864:Fairness opinion
859:Enterprise value
842:Weighted average
770:Leveraged buyout
625:Drag-along right
523:Equity carve-out
480:Equity offerings
476:
475:
472:
444:Shareholder loan
429:Second lien debt
424:Preferred equity
404:Convertible debt
377:
370:
363:
354:
353:
347:
346:
344:
343:
321:
312:
311:
275:
269:
268:
266:
259:
251:
245:
244:
237:
231:
230:
228:
217:
211:
200:
194:
189:
156:leveraged buyout
138:remains stable.
85:valuation method
63:– Value of Debt
40:=Free Cash Flows
21:
1015:
1014:
1010:
1009:
1008:
1006:
1005:
1004:
985:
984:
983:
978:
950:
926:Stock valuation
921:Residual income
837:Cost of capital
794:
790:Project finance
780:High-yield debt
736:
715:Tag-along right
640:Mandatory offer
610:Control premium
591:
584:
560:Public offering
508:Bought out deal
470:
469:
463:
390:
381:
351:
350:
341:
339:
323:
322:
315:
276:
272:
264:
257:
253:
252:
248:
239:
238:
234:
226:
218:
214:
201:
197:
190:
186:
181:
164:
93:equity financed
12:
11:
5:
1013:
1003:
1002:
997:
980:
979:
977:
976:
966:
955:
952:
951:
949:
948:
943:
941:Terminal value
938:
933:
928:
923:
918:
913:
908:
903:
898:
893:
888:
883:
882:
881:
874:Free cash flow
871:
866:
861:
856:
851:
846:
845:
844:
834:
829:
824:
819:
814:
808:
806:
800:
799:
796:
795:
793:
792:
787:
785:Private equity
782:
777:
772:
767:
762:
757:
752:
746:
744:
738:
737:
735:
734:
729:
728:
727:
717:
712:
707:
702:
697:
692:
687:
682:
677:
672:
667:
662:
657:
652:
647:
642:
637:
632:
627:
622:
617:
612:
607:
602:
596:
594:
586:
585:
583:
582:
577:
572:
567:
562:
557:
552:
547:
542:
541:
540:
530:
525:
520:
515:
510:
505:
500:
495:
490:
484:
482:
473:
465:
464:
462:
461:
456:
451:
446:
441:
436:
431:
426:
421:
416:
414:Mezzanine debt
411:
406:
400:
398:
392:
391:
380:
379:
372:
365:
357:
349:
348:
313:
270:
246:
232:
212:
195:
183:
182:
180:
177:
176:
175:
170:
163:
160:
126:at either the
120:cost of equity
72:
71:
27:Terminal Value
9:
6:
4:
3:
2:
1012:
1001:
998:
996:
993:
992:
990:
975:
967:
965:
957:
956:
953:
947:
944:
942:
939:
937:
934:
932:
929:
927:
924:
922:
919:
917:
914:
912:
909:
907:
904:
902:
899:
897:
894:
892:
889:
887:
884:
880:
877:
876:
875:
872:
870:
867:
865:
862:
860:
857:
855:
852:
850:
847:
843:
840:
839:
838:
835:
833:
830:
828:
825:
823:
820:
818:
815:
813:
810:
809:
807:
805:
801:
791:
788:
786:
783:
781:
778:
776:
773:
771:
768:
766:
763:
761:
758:
756:
753:
751:
748:
747:
745:
743:
739:
733:
730:
726:
723:
722:
721:
718:
716:
713:
711:
708:
706:
703:
701:
698:
696:
693:
691:
688:
686:
683:
681:
678:
676:
673:
671:
668:
666:
663:
661:
658:
656:
653:
651:
648:
646:
643:
641:
638:
636:
633:
631:
628:
626:
623:
621:
618:
616:
613:
611:
608:
606:
603:
601:
598:
597:
595:
593:
587:
581:
578:
576:
573:
571:
568:
566:
563:
561:
558:
556:
553:
551:
548:
546:
543:
539:
536:
535:
534:
531:
529:
526:
524:
521:
519:
516:
514:
511:
509:
506:
504:
501:
499:
496:
494:
493:Book building
491:
489:
486:
485:
483:
481:
477:
474:
466:
460:
457:
455:
452:
450:
447:
445:
442:
440:
437:
435:
432:
430:
427:
425:
422:
420:
417:
415:
412:
410:
407:
405:
402:
401:
399:
397:
393:
389:
385:
378:
373:
371:
366:
364:
359:
358:
355:
338:
334:
330:
326:
320:
318:
309:
305:
301:
297:
293:
289:
285:
281:
274:
263:
256:
250:
242:
236:
225:
224:
216:
209:
205:
199:
193:
188:
184:
174:
171:
169:
166:
165:
159:
157:
153:
147:
145:
139:
137:
133:
129:
125:
121:
117:
113:
108:
106:
102:
98:
97:present value
94:
90:
89:Stewart Myers
86:
82:
78:
70:
67:
66:
61:
60:
55:
53:
48:
47:
42:
41:
36:
35:
30:
28:
23:
19:
916:Real options
816:
732:Tender offer
592:acquisitions
580:Underwriting
565:Rights issue
468:Transactions
340:. Retrieved
328:
283:
273:
249:
235:
222:
215:
210:course-notes
204:WACC and APV
198:
187:
148:
144:cost of debt
140:
128:cost of debt
109:
80:
76:
75:
68:
64:
62:
58:
56:
51:
49:
45:
43:
39:
37:
33:
31:
24:
17:
690:Squeeze-out
660:Proxy fight
590:Mergers and
503:Bought deal
434:Senior debt
124:tax shields
18:APV formula
989:Categories
936:Tax shield
896:Mismarking
700:Stock swap
650:Pitch book
620:Divestment
498:Bookrunner
419:Pari passu
342:2021-12-20
179:References
152:tax shield
101:tax shield
911:Pure play
804:Valuation
670:Sell side
533:Greenshoe
337:0017-8012
308:153719371
300:1354-7798
112:DCF model
742:Leverage
720:Takeover
615:Demerger
600:Buy side
262:Archived
162:See also
725:Reverse
710:Synergy
550:Pre-IPO
538:Reverse
459:Warrant
208:MIT OCW
99:of the
83:) is a
335:
306:
298:
122:, and
449:Stock
304:S2CID
265:(PDF)
258:(PDF)
227:(PDF)
386:and
333:ISSN
296:ISSN
116:WACC
105:debt
288:doi
103:of
81:APV
991::
331:.
327:.
316:^
302:.
294:.
282:.
260:.
206:,
376:e
369:t
362:v
345:.
310:.
290::
243:.
79:(
Text is available under the Creative Commons Attribution-ShareAlike License. Additional terms may apply.